Tuesday, November 23, 2010

"Between the late 1940s and today, the inflation-adjusted prices of dental services and of higher education have behaved in a strikingly similar way. A wide variety of other personal services (ranging from the services of lawyers and physicians to bank service charges and life insurance) also display this same basic pattern of price change. These similarities could be coincidences. Perhaps each industry requires its own separate explanation. We don’t think so. We think one explanation fits them all.

College cost, and cost in the other similar industries, is rising for three broad reasons. First, over time we have found ways to reduce the number of labor hours and kilowatts of power needed to produce most manufactured goods and agricultural products. By contrast, many services remain artisan-like. The time of the service provider is the service itself, and labor-saving productivity gains are very hard to achieve. As a result, the cost of a year of college or an hour of a lawyer’s time must rise compared to the price of a ton of steel or a bushel of wheat.

This is “cost disease,” which is sometimes called Baumol’s disease, and a comment by Al zeroed in on it quite accurately. Rising productivity elsewhere in the economy generates this “disease,” while creating the growth that pays the costs for these more artisan-like services. The college-centric view of the world does not accord this argument the central place the data say it deserves

Second, the upward trend of college cost has been accelerated by changes in income distribution over the last 30 years. People with high levels of education have seen big income gains. Universities rely on highly educated people, as do hospitals, law offices and dental practices, to name a few. Rising income inequality is a force for rising cost in any industry like higher education. And rising income inequality also drives affordability problems. We will have more to say on affordability later.

Third, technology is a double-edged sword in many industries. For the most part, technological changes in how we teach, how we do research and how we equip our facilities have come at a cost. Some new technologies do make us more efficient. We no longer employ typing pools. But other new techniques, like computer-aided design in architecture classes or pulsed lasers in physics labs, have increased cost."

About Me

I'm sixty, and for good or ill the civil rights movement and the Viet Nam war are seared into the center of who I am. I graduated from Public School in Chicago, and went to Phillips Academy at Andover, like G.W. Bush, like Bremer, "Scooter" Libby was a classmate ('68). I was pro war in Viet Nam until Christmas Vacation of '67. I was watching the news and an Army Captain was describing how they'd trapped some Viet Cong in a tunnel. When no one would come out, they bulldozed earth over the air vents. Then some hours later they started pulling bodies out of the tunnel, all women and children. It was the first and only time I ever threw up watching the news, but I've come close since then.